LDN - Business

Global regulators step up efforts to maintain cross-border bank links

[December 19, 2016] By Huw Jones

LONDON (Reuters) - Global regulators have stepped up efforts to reverse a decline in cross-border links between banks that are critical for people to send money abroad.

So-called correspondent banking has come under intense regulatory scrutiny to stop money laundering and terrorism financing, prompting some lenders in Europe and the United States to withdraw, saying that the tougher checks on customers are too burdensome.

The Financial Stability Board (FSB) said there has been a clear, downward trend in correspondent banking, raising concerns about remittances, a staple of some poorer economies.

The FSB, a regulatory task force for the Group of 20 economies (G20), published a plan on Monday to improve data on correspondent banking, reassure lenders on the level of checks needed on customers, and come up with more ways to make those checks easier.

It builds on efforts began in November 2015.

"A decline in correspondent banking relationships can adversely affect growth, financial inclusion, remittances flows as well as the stability and integrity of the global financial system," said Alexander Karrer, chair of the FSB correspondent banking coordination group and deputy state secretary at the Swiss Federal Department of Finance.

The FSB said regulators have begun to reassure banks they don't have to conduct due diligence on their "customer's customer" before authorizing a cross-border payment.

A global task force published new guidance in October on customer checks, saying there had been an "incorrect understanding" of anti-money laundering measures, which caused unnecessary pressure on banks to end correspondent relationships.

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Arrangement of various world currencies including Chinese Yuan, Japanese Yen, US Dollar, Euro, British Pound, Swiss Franc and Russian Ruble pictured in Warsaw January 26, 2011. REUTERS/Kacper Pempel

The FSB said SWIFT, a global banking messaging system, will set out by April a process for monitoring trends in correspondent banking to see if measures being taken by regulators are having an effect.

The global watchdog will also publish the findings of its detailed survey of correspondent banking in April.

By March the FSB will publish guidance for countries to show foreign banks how they have improved their anti-money laundering rules in order to increase "capacity" in correspondent banking.

Jurisdictions exited by correspondent banks are often those with actual or perceived weaknesses in their supervisory and regulatory frameworks, the FSB said.

Regulators will also develop guidance on how banks could cut costs by streamlining due diligence on customers, such as by using "utilities" to centralize basic information for all banks to access. This will include looking at the use of "big data" and machine learning.

The FSB will report on progress to G20 leaders when they meet in July.

(Editing by Jeremy Gaunt)

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